[Federal Register Volume 72, Number 35 (Thursday, February 22, 2007)]
[Notices]
[Pages 8051-8052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-2986]



[[Page 8051]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55290; File No. SR-PHLX-2007-05]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
as Modified by Amendment No. 1 Thereto Relating to Changing the Payment 
for Order Flow Fee for Options Subject to the Penny Pilot Program

February 13, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder, \2\ notice is hereby given 
that on January 25, 2007, the Philadelphia Stock Exchange, Inc. 
(``PHLX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. On February 8, 2007, the PHLX submitted 
Amendment No. 1 to the proposed rule change. PHLX has designated this 
proposal as one establishing or changing a due, fee, or other charge 
imposed by PHLX under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 
19b-4(f)(2) thereunder, \4\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to decrease its payment for order flow fee from 
$0.70 per contract to $0.25 per contract for the equity options that 
trade as part of the Exchange's Penny Pilot Program to quote and trade 
options in penny increments (as discussed in more detail below). Listed 
below is each option class included in the Penny Pilot Program and the 
effective date of the fee change for such option class.

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                                                             Anticipated effective date (for trades settling on
            Symbol                 Underlying security               or after the dates set forth below)
----------------------------------------------------------------------------------------------------------------
IWM..........................  ishares Russell 2000 Index   February 12, 2007.
                                Fund.
SMH..........................  Semiconductor Holdrs.......  February 12, 2007.
GE...........................  General Electric Company...  February 5, 2007.
AMD..........................  Advanced Micro Devices, Inc  February 12, 2007.
MSFT.........................  Microsoft Corporation......  February 5, 2007.
INTC.........................  Intel Corporation..........  February 12, 2007.
CAT..........................  Caterpillar, Inc...........  February 12, 2007.
WFMI.........................  Whole Foods Market, Inc....  January 29, 2007.
TXN..........................  Texas Instruments            February 12, 2007.
                                Incorporated.
A............................  Agilent Tech Inc...........  February 12, 2007.
SUNW.........................   Flextronics International   February 12, 2007.
                                Ltd.
FLEX.........................   Sun Microsystems, Inc.....  February 12, 2007.
----------------------------------------------------------------------------------------------------------------

    For the Nasdaq-100 Index Tracking Stock<SUP>SM</SUP> traded under 
the symbol QQQQ (``QQQQ''), \5\ the payment for order flow fee would be 
decreased from $0.75 to $0.25, anticipated to be effective for trades 
settling on or after February 12, 2007.
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    \5\ The Nasdaq-100([reg]), Nasdaq-100 Index([reg]), 
Nasdaq([reg]), The Nasdaq Stock Market(r), Nasdaq-100 
Shares<SUP>SM</SUP>, Nasdaq-100 Trust<SUP>SM</SUP>, Nasdaq-100 Index 
Tracking Stock<SUP>SM</SUP>, and QQQ<SUP>SM</SUP> are trademarks or 
service marks of The Nasdaq Stock Market, Inc. (``Nasdaq'') and have 
been licensed for use for certain purposes by the Philadelphia Stock 
Exchange pursuant to a License Agreement with Nasdaq. The Nasdaq-100 
Index([reg]) (the ``Index'') is determined, composed, and calculated 
by Nasdaq without regard to the Licensee, the Nasdaq-100 
Trust<SUP>SM</SUP>, or the beneficial owners of Nasdaq-100 
Shares<SUP>SM</SUP>. Nasdaq has complete control and sole discretion 
in determining, comprising, or calculating the Index or in modifying 
in any way its method for determining, comprising, or calculating 
the Index in the future.
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    Other than the rate changes described above, no other changes to 
the Exchange's current payment for order flow program are being 
proposed at this time.
    This proposal is to become effective for trades settling on or 
after the rollout date for each option listed above and would remain in 
effect until May 27, 2007.\6\
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    \6\ The Exchange's payment for order flow program is currently 
in effect until May 27, 2007. See Securities Exchange Act Release 
No. 53841 (May 19, 2006), 71 FR 30461 (May 26, 2006) (SR-Phlx-2006-
33).
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    The text of the proposed rule change is available at the Exchange, 
the Commission's Public Reference Room, and http://www.phlx.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change, and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. PHLX has prepared summaries, set forth in Sections A, B, 
and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, the Exchange assesses a payment for order flow fee of 
$0.70 per contract for equity options other than options on QQQQ. 
Options on QQQQ are assessed $0.75 per contract. Specialists,\7\ 
Directed Registered Options Traders (``Directed ROTs'') and Registered 
Options Traders (``ROTs'') are assessed a payment for order flow fee 
when a customer order is directed to a specialist unit or Directed ROT 
who participates in the Exchange's payment for order flow program.\8\ 
Trades resulting from either Directed\9\ or non-

[[Page 8052]]

Directed Orders that are delivered electronically over AUTOM\10\ and 
executed on the Exchange are assessed a payment for order flow fee, 
while non-electronically-delivered orders (i.e., represented by a floor 
broker) are not assessed a payment for order flow fee.\11\
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    \7\ The Exchange uses the terms ``specialist'' and ``specialist 
unit'' interchangeably herein.
    \8\ Therefore, the payment for order flow fee is assessed, in 
effect, on equity option transactions between a customer and a ROT, 
a customer and a Directed ROT, or a customer and a specialist when a 
customer order is directed to a specialist or Directed ROT who 
participates in the Exchange's payment for order flow program.
    \9\ The term ``Directed Order'' means any customer order to buy 
or sell, which has been directed to a particular specialist, Remote 
Streaming Quote Trader or Streaming Quote Trader by an Order Flow 
Provider.
    \10\ AUTOM is the Exchange's electronic order delivery, routing, 
execution and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. See Exchange Rules 1014(b)(ii) and 1080.
    \11\ Electronically-delivered orders do not include orders 
delivered through the Floor Broker Management System pursuant to 
Exchange Rule 1063.
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    Separately, the Exchange intends to implement a six-month pilot 
period beginning on January 26, 2007 (the ``pilot''), during which 
certain options (the options set forth in this proposal) would be 
quoted and traded on the Exchange in minimum increments of $0.01 for 
all series in such options with a price of less than $3.00, and in 
minimum increments of $0.05 for all series in such options with a price 
of $3.00 or higher, except that options overlying the QQQQ would be 
quoted and traded in minimum increments of $0.01 for all series 
regardless of the price.\12\
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    \12\ See Securities Exchange Act Release No. 54886 (December 6, 
2006), 71 FR 74979 (December13, 2006) (SR-Phlx-2006-74).
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    The purpose of this proposal is to assess payment for order flow 
fees in a manner that the Exchange believes is more appropriate in 
light of the pilot. In connection with the implementation of the pilot, 
the Exchange proposes to decrease the amount of the payment for order 
flow fees in the options that are subject to the pilot because the 
Exchange believes that, with narrower minimum increments and therefore 
possibly narrower spreads, specialists, Directed ROTs, and ROTs may 
face tighter profit margins if coupled with the current $0.70 (or $0.75 
for QQQQ) payment for order flow fee. By reducing the payment for order 
flow fees in the options that are subject to the pilot, the Exchange 
believes that members and member organizations should continue to 
display strong liquid markets, without being financially burdened with 
the higher payment for order flow fees that are currently in effect.
    The purpose of establishing different effective dates is to 
implement the proposed payment for order flow fees on the date on which 
each specified option is rolled out in connection with the pilot. The 
proposed fees would remain in effect until May 27, 2007.\13\
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    \13\ See supra, note 6.
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2. Statutory Basis
    The Exchange believes that the proposed rule change to amend its 
schedule of fees is consistent with Section 6(b) of the Act \14\ in 
general, and Section 6(b)(4) of the Act \15\ in particular, in that it 
is an equitable allocation of reasonable fees and other charges among 
exchange members.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \16\ and Rule 
19b-4(f)(2) \17\ thereunder, because it establishes or changes a due, 
fee, or other charge imposed by the Exchange. Accordingly, the proposal 
will take effect upon filing with the Commission. At any time within 60 
days of the filing of such proposed rule change the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
    \18\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, the 
Commission considers the period to commence on February 8, 2007, the 
date on which the Exchange filed Amendment No. 1.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#6a181f060f47090507070f041e192a190f09440d051c"><span class="__cf_email__" data-cfemail="285a5d444d054b4745454d465c5b685b4d4b064f475e">[email protected]</span></a>. Please include 
File Number SR-PHLX-2007-05 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-PHLX-2007-05. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of PHLX. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-PHLX-2007-05 and should be submitted on or before March 15, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-2986 Filed 2-21-07; 8:45 am]
BILLING CODE 8010-01-P


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